FY20 economic growth at 11-year low of 4.2%

January-march GDP slips to 3.1% as economy takes a big virus hit

NEW DELHI: The Indian economy grew by 3.1% in the three months ended March and 4.2% in 2019-20 on the back of falling investment and consumption, with the lockdown imposed to slow the spread of the coronavirus disease (Covid-19) having only a marginal impact because it affected only the last week of March.

The lockdown, however, is expected to sharply affect growth in 2020-21, with many analysts estimating that the economy will actually shrink, perhaps by as much as 5% this financial year.

The quarterly and annual numbers are against projections of 4.7% and 5% respectively, although it has been clear for some time that these will not materialise. Provisional accounts for 2019-20 released Friday showed that the fiscal deficit for the year was 4.59%.

To be sure, the March quarter performance is better than expected. A Reuters poll of economists forecast a growth rate of 2.1% for the March quarter. The 3.1% growth in the March quarter is the lowest since March 2009, when, under the impact of the global financial crisis, the economy expanded by only 0.2%. The 4.2% growth in 2019-20 is an 11-year low.

According to the RBI, India’s gross domestic product (GDP) will shrink in 2020-21. This means that India’s GDP would have been in a deceleration phase for four consecutive years since 2017-18. This is unprecedented in post-independence India.

Friday’s data also shows that Gross Fixed Capital Formation (GCFC), a measure of investment, will contract by 2.8% in 2019-20. The Centre for Monitoring Indian Economy’s (CMIE) database shows that this is the worst investment performance since 1991-92. Core inflation, ie nonfood non-fuel inflation, grew at 3.8% in 2019-20, the lowest since 2012-13, the earliest period for which data is available under the 2012 Consumer Price Index series. RBI reduced its policy rates in every quarter in 2019-20. A contraction in investment in a low interest low inflation environment suggests that it is lack of demand rather than availability of cost of capital.